Shareholder Oppression and “Fair Value”: Of Discounts, Dates, and Dastardly Deeds in the Close Corporation
Moll, Douglas K.
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Abstract
The doctrine of shareholder oppression protects a close corporation minority investor from the improper exercise of majority control. When a minority shareholder establishes "oppressive" majority conduct, a court typically orders the majority to purchase the minority's stock at its "fair value." But what does fair value mean? Further, when is fair value to be measured? The questions are critical ones that affect the lives of countless close corporation investors and that generate an enormous amount of present-day litigation.
This Article builds a case for defining fair value as enterprise value in the shareholder oppression context. The Article argues, in other words, that the buyout remedy should provide an oppressed minority investor with his pro rata share of the company's overall value, with no reductions (or "discounts") for the lack of control or liquidity associated with the minority's shares. Moreover, the Article suggests that, in many situations, courts should allow an oppressed shareholder to choose between the "date of filing" and the "date of oppression" as the appropriate valuation date.